ISDN (ISDN SP): Riding the new year rally
- BUY Entry – 0.72 Target –0.85 Stop Loss – 0.66
- ISDN is a leading provider of industrial automation solutions throughout Asia. The company has more than 10,000 customers, and 74 offices spanning key Asian growth markets, and has a 35-year history of innovating alongside the growing technology needs of its customers. Today, ISDN’s solutions power advanced industrial sectors including semiconductors, Industry 4.0 manufacturing, medical devices, aerospace, and clean energy. The group generates around 68% of sales from China.
- Growing productivity. ISDN has continued its strategic buildout by expanding its solutions portfolio to include industrial internet-of-things (IoT) connectivity, deepening advanced engineering, growing industrial systems projects, and advancing software and cloud solutions. Covid-19 and geopolitical tensions have reduced global labour mobility and increased employee health risk, leading to an acceleration in labour automation for the group’s customer base.
- Positive technical and momentum factors. MACD recently formed a bullish crossover while RSI is on an uptrend. ISDN should also benefit from the positive sentiment in the semiconductor sector. Semiconductor stocks are enjoying a broad rally that has pushed the Philadelphia Semiconductor Index to new highs this week.
- Fundamental OUTPERFORM and TP to S$0.85. ISDN currently trades at only 6x forward EV/EBITDA, a significant discount to its international peers who are trading at around 10x EV/EBITDA.
Wilmar International Ltd (WIL SP): A delayed Christmas rally
- REITERATE BUY Entry – 4.08 Target – 4.38 Stop Loss – 3.98
- Wilmar is Asia’s leading agribusiness group that encompasses the entire value chain of the agricultural commodity business, from cultivation and milling of palm oil and sugarcane, to processing, branding and distribution of a wide range of edible food products in consumer, medium and bulk packaging, animal feeds and industrial agri-products such as oleochemicals and biodiesel.
- Resilient palm oil prices. Seasonally, December has been a strong month for crude oil prices. Malaysian palm oil futures bounced back above MYR 5,1000 per tonne last week over concerns about lower production after flooding impacted plantations in Malaysia. Palm oil production shrank around 13% MoM in the first 20 days of December, according to estimates by the Malaysian Palm Oil Association.
- HIgher soybean prices are also boosting palm oil prices. Palm oil prices are also receiving a boost from Chicago soybean futures which surged higher to their highest since August as dry weather threatened crops in Brazil and Argentina.
- Aggressive share buy-backs. The company bought back S$14mn worth of shares in December, bringing year-to-date share buyback to S$131mn.
- Positive consensus estimates. Wilmar currently has 13 BUY recommendations and an average 12M TP of S$5.93, implying a 45% upside potential from the last closing price.
Generic 1st Crude Palm Oil (K01 Comdty): December 2020 rally
China Hongqiao Group Ltd (1378 HK): Joining the aluminium rally
- Reiterate Buy Entry – 8.15 Target – 9.64 Stop Loss – 7.29
- China Hongqiao Group Limited, an investment holding company, manufactures and sells aluminium products in the People’s Republic of China and Indonesia. The company’s products include molten aluminium alloys, aluminium alloy ingots, aluminium busbars, and aluminium alloy processing products. It also engages in the research, development, and trading of bauxite; production and sale of electricity; and provision of financial leasing services.
- Strength in aluminium prices. Aluminium futures remained close to $2,700 per tonne in the third week of December, after reaching a 7-week high at $2,724 in the previous week on worries over tight supplies. Several Chinese regions have cut energy-intensive aluminium production this year in the face of pressure to reduce power consumption to meet climate goals and ease electricity shortages. However, China’s aluminium output 35.45mn tonnes in the period from January to November was up 5.7% on the year, on course for an annual record.
Generic 1st Primary Aluminium (LA1 Comdty)
- Outstanding 1H21 results. 1H21 revenue increased approximately 31.4% YoY to RMB 52,480,549,000, while profit increased approximately 200.4% to RMB8,423,717,000. The Board also declared an interim dividend for 2021 of HK45.0 cents per share, compared to the six months ended 30 June 2020 of HK15.0 cents.
- Positive consensus estimates. According to Bloomberg consensus estimates, China Hongqiao has ratings of 11 BUYS, 1 HOLD and 0 SELL, with a 12M target price of HK$13.51, representing an upside of 59.3% as of yesterday’s closing price.
China International Capital Corp Ltd (3908 HK): Benefitting from a new wave of dual listings
- Buy Entry – 20.5 Target – 23.5 Stop Loss – 19.5
- China International Capital Corp Ltd is a China-based company mainly provides investment banking services to domestic and overseas enterprises, institutions and individuals. The Company mainly operates its businesses through six segments. The Investment Banking segment mainly provides equity financing, debt and structured financing and financial consulting services for enterprises and institutions. The Stock segment mainly provides comprehensive financial services for stock business to professional investors. The Fixed Income segment mainly provides interest rate and foreign exchange, credit business, securitization business, derivatives and futures business. The Investment Management segment is mainly engaged in asset management business, fund management business and private equity investment fund business. The Wealth Management segment mainly provides wealth management products and services. The Research segment mainly provides research services to customers.
- Monetary easing in China. The People’s Bank of China reduced most banks’ reserve requirement ratio by 0.5 percentage point on December 15th, releasing RMB1.2tn (US$188bn) of liquidity. Meanwhile, the central bank also cut one -year loan prime rate for the first time in almost two years by 50bps on December 20th. It is viewed as some relief for the property sector. However, the central government will not compromise once property prices resurge again. Hence, the curb on the property market will continue. The easing measures are more like a seasonally tactical tweak on the macro economy as liquidity is usually tight at the end of the year. Liquidity injection will benefit the equity market to some extent as the authorities still restrict fund flows to the property market.
- A wave of dual listing in Hong Kong in 2022. Recently, US-listed Chinese stocks were sold off due to concerns over the VIE-based structure. Meanwhile, Didi Chuxing (DIDI US) announced it will delist from the US market and list in Hong Kong. These events could trigger another wave of dual listings in Hong Kong. CICC, as one of the largest investment banks in China could have more underwriting businesses. Furthermore, other Chinese unicorn companies are expected to choose Hong Kong as the primary listing location.
- Updated market consensus of the EPS growth in FY22/23 are 18.9%/21.1% YoY respectively, which translates to 7.3x/6.1x forward PE. Current PER is 8.8x. Bloomberg consensus average 12-month target price is HK$26.54.
Top Sector Gainers
|Food Retail||+1.40%||Consumer Sentiment in U.S. Increases on Improved Outlooks|
|Homebuilding||+0.8%||U.S. existing home sales rise in November; supply remains tight|
Top Sector Losers
|Aluminum||-1.6%||China’s 2021 primary aluminum output seen below early estimates: Antaike|
|Semiconductors||-1.1%||Nasdaq is poised to underperform S&P 500 for first time since 2016 as investors shun tech stocks|
|Biotech||-0.9%||Omicron infection appears to protect against Covid delta variant and could displace it|
- Cryptocurrency related stocks Riot Blockchain (RIOT US), Hive Blockchain (HIVE US) and Marathon Digital (MARA US) fell 8.5%, 9.4% and 10.8% respectively, moving in correlation with the crypto market. Bitcoin rallied over the past few days, reaching the $52,000 mark at one point but declined yesterday, trading as low as $47,437 resulting in $300 million in forced liquidations on crypto futures contracts. Ethereum was down 7.6%, Cardano declined 9.9%, and Terra was down 10.3%.
- Krispy Kreme (DNUT US) shares jumped as much as 13% yesterday after the company announced a temporary promotion to boost customer traffic through the New Year holiday. The sale would offer two dozen of its donuts selling across U.S. locations for $12 through 2 January 2022. Management recently credited seasonal promotions such as this for helping drive traffic in 2021, in a conference call in November.
- Apple (AAPL US) shares slipped 0.6% yesterday after a promising four-day rally that put the company within a $3 trillion market value. Based on Apple’s outstanding shares, it will reach $3 trillion if the stock hits $182.86; the stock rose as high as $182.13 in intraday trading earlier this month. The stock is currently at a $2.94 trillion value at Tuesday’s closing.
- Jiutian Chemical (JIUC SP) shares rose alongside gains in DMF prices. DMF prices in China jumped 15% yesterday, reaching a 1-month high of RMB15,900 per tonne.
- RH Petrogas (RHP SP) and Rex International (REXI SP) shares surged between 7% and 8% on Tuesday after oil prices extended their gains and traded near their one-month highs. Worries over Omicron are easing resulting in more optimism over oil demand. Money managers raised their net long US crude futures and options positions in the week to 21 December, according to the US Commodity Futures Trading Commission. All eyes will be on OPEC+’s meeting on 4 January at which the group will decide whether to go ahead with the scheduled 400,000 barrels per day production increase for February.
- ISDN (ISDN SP) and Frencken (FRKN SP) shares of Singapore’s semiconductor-related stocks followed their US-listed peers higher on Tuesday. The US semiconductor sector enjoyed a broad rally enough to propel the Philadelphia Semiconductor Index (SOX) into record levels. AMD was SOX’s biggest gainer, followed by gains from other blue-chip names such as Nvidia.
Top Sector Gainers
|Road and Railway||3.16%||China’s logistics market expands in Jan-Nov|
|Packaged Foods||1.93%||China to stabilise grain output and boost oilseed crop, minister says|
|Airline Services||1.82%||Omicron: China’s tourism industry braces for fallout as a surge in Covid-19 puts peak travel season in jeopardy|
Top Sector Losers
|Electric Equipment||-2.79%||China’s State Assets Regulator Takes Control of Southern Power Grid With Stake Hike|
|Biotechnology||-2.21%||Kintor plummets after unsatisfactory interim analysis on COVID-19 pill trial|
|Electricity Supply||-2.16%||CHINA DATA: Big power producers fulfill obligations ahead of due date for first compliance cycle|
- China Evergrande New Energy Vehicle Group Ltd (708 HK) shares extended its rally, jumping another 17.2% following news of the company’s Hengchi 5LX model will roll off the assembly line in early 2022 as the first mass-produced model under the Hengchi brand. The Hengchi 5 LX is in the running to compete with rival cars such as the BYD Song PLUS EV, WM Motor’s W6, and the Volkswagen ID4.
- China Traditional Chinese Medicine Holdings Co Ltd (570 HK) shares rose 15.9% yesterday. Morgan Stanley analysts released a report saying that they anticipate the share price rising 70-80% over the next 45 days given its recent undervalued price.
- China Cinda Asset Management Co Ltd (1359 HK) shares closed at a high since September. The Chinese state-owned asset management company said it will spend 6 billion yuan (US$930 million) to buy a 20% equity stake in the consumer credit unit of Ant Group, as part of the expansion of the capital base of a vehicle created this summer to absorb Ant’s lucrative Huabei and Jiebei operations.
- GCL-Poly Energy Holdings Limited (3800 HK). There was no company-specific news. Previously, the company announced that the completion of the placing took place on 22 December 2021. A total of 2,036,588,000 Shares, representing approximately 7.52% of the total issued share capital of the company as enlarged by the allotment and issue of the placing shares, have been placed to no less than six placees.
- Kintor Pharmaceutical Ltd (9939 HK) shares plunged after data from a Phase III clinical trial for its potential COVID-19 treatment proxalutamide in non-hospitalised patients showed that it did not meet statistical criteria in the interim analysis due to the low number of hospitalisations.
Trading Dashboard Update: Add Wilmar International (WIL SP) at S$4.08. Take loss on Genting Singapore (GENS SP) at S$0.775.
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